Property flipping, or house flipping as some people call it, can be a lucrative way to earn money in real estate—if it’s done right. Want to get started in property flipping? Here are some tips to get started— and the pros and cons of this type of real estate investment strategy. We’ll also answer the question, “Do I need a real estate license to flip houses?”
What Is House Flipping?
House flipping is the practice of purchasing a property with the intent of improving it and then selling it for a profit. House flippers typically target homes in need of repair, foreclosure properties, or those with the potential for substantial appreciation.
How Flipping Houses Works
Here’s a basic description of how to flip houses for profit.
- Find a suitable property
- Secure funding for the investment and updates
- Complete renovations and repairs
- Market and sell the updated property
Some find that they enjoy the house-flipping process – and use their profits from the first house to invest in additional properties to flip.
Are you intrigued? Here are some more details on how to get started with this type of real estate investment strategy.
How to Get Started with House Flipping
Even though it looks easy on TV, house flipping requires a lot of knowledge of real estate markets and home renovation skills. While you can depend on professionals for assistance in finding houses and making repairs, hiring others can eat into your profits.
Here are some tips on how to get started flipping properties.
1. Set a budget.
You have to pay attention to your dollars and cents when flipping properties. This is harder to do than you might realize, as home renovations and remodeling can often get out of hand. You may uncover additional renovation needs as you dig into your project, or a previously working system may suddenly need to be replaced.
Set a budget with a lot of padding to cover these contingencies. Remember to add monthly costs, like utilities, property taxes, and insurance, when determining how much you need to sell it for to make a profit. And don’t forget to include the real estate agent’s fees and closing costs that you will be required to pay when the property sells.
2. Find the right property.
Finding the right property to flip requires extensive knowledge of the real estate market. You will need to identify properties with potential for improvement and assess whether the resale value could yield a profit after you pay for renovations. It sounds easy, but it requires knowledge and skill.
3. Make an offer.
Your offer needs to be competitive enough to stand out from other offers but low enough so that you will be sure to make a profit. Also, you may be competing for properties with other house flippers.
4. Set a timeline.
Keep in mind that in addition to your renovation expenses, you will also have monthly payments that will cut into your profits, so it’s best to finish renovations in a timely manner. However, there may be tax implications on how fast the house is flipped, so talk with a tax advisor before deciding when to sell.
5. Hire the right renovation team, or do it yourself.
Once you determine what renovation or remodeling projects would improve the property’s value, you must decide if you have the skills to complete the work yourself. Hiring remodeling crews may eat into your profits. However, if you don’t have the skills, tools, knowledge, time, or energy to complete the work yourself, you may need to hire a team to get the job done.
6. Sell your property.
Once the renovations are complete, you can sell the property – hopefully for a profit. The profit is calculated by subtracting the total costs (purchase price, renovation expenses, insurance, closing costs, etc.) from the sale price.
7. Evaluate and (possibly) flip again.
Successful house flippers may reinvest their profits into acquiring and flipping more properties. Others may move on to different investment opportunities and strategies. Regardless of your decision, you will certainly learn a lot by going through the house-flipping process.
House Flipping Pros And Cons
Is house flipping the right real estate investment strategy for you? Here are some pros and cons to consider.
House Flipping Pros
Let’s start with the potential benefits of flipping houses:
- Profit potential: House flipping can be particularly profitable in markets where property values are appreciating or where there is a high demand for renovated homes.
- Control over investment: As a property owner, you will be able to manage the renovations using your knowledge of market trends, design, and buyer preferences.
- Tax benefits: Check with a tax expert in your area to find out what tax benefits may be available for flipping houses.
In addition to making a profit, some house flippers find it extremely satisfying to breathe life back into a worn property. You’ll feel good about creating a beautiful, safe space for a new family to enjoy.
House Flipping Cons
House flipping isn’t always profitable, and it can be a lot of work. Here’s a list of the drawbacks of house flipping.
- Financial risk: House flipping involves significant financial risk, including the potential for unexpected renovation costs, market downturns, or difficulty selling the property at the desired price.
- Time and effort: Renovating a property can be time-consuming, labor-intensive, and frustrating.
- Regulatory compliance: House flippers must comply with local building codes, zoning regulations, and permit requirements when renovating properties.
- Competition: The popularity of house flipping has increased in recent years, leading to greater competition among investors for desirable properties.
House flipping isn’t for everyone – regardless of what TikTokers report.
Do You Need a License to Flip Houses?
In most states, you are not required to have a real estate license to flip properties. However, there are certainly benefits to obtaining a real estate license if you plan to flip multiple properties.
Consider tax implications before flipping houses.
Please talk with a tax specialist before you start so that you understand the tax ramifications of house flipping. Your tax bill may be affected by your area, the frequency with which you buy and sell properties and the length of time you keep the property. Ask how your tax bill may be altered if you flip houses as a real estate agent.
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You’ll learn critical information in real estate school that will increase your chances of making a profit.
Even though a real estate license may not be required, it’s important to have a solid understanding of real estate laws, contracts, and regulations in your area. Real estate pre-licensing courses cover this material, as well as important information about disclosure forms, zoning challenges, and types of financing. This knowledge can help you navigate the purchase and sale process, negotiate contracts, and ensure compliance with legal requirements.
“Everyone thinks that real estate is easy,” Bill Gallagher, a Charlotte, NC, real estate agent, said. “It’s the opposite. Having knowledge of what can go wrong—all the liability issues—can really help reduce your risk.”
As a real estate agent, you’ll have MLS access.
Having a real estate license can provide access to valuable resources, networks, and market information that may increase the likelihood that you profit from house flipping. You’ll have advanced knowledge of properties that are coming to the market. And, as a real estate agent, you’ll have access to Multiple Listing Services (MLS), which has the most accurate information about properties for sale.
You can save on real estate commissions if you have a real estate license.
While you’ll always have to pay the agent who shows up with a buyer a 2% to 3% commission, you won’t have to pay the seller’s commission if you have your real estate license. However, do a reality check with your broker. Some brokers—not all—will let their agents pay themselves or eliminate the listing commission on sales of agent-owner properties.
Having a real estate license may offer legal protection.
Real estate licenses come with a set of ethical and professional standards, and they provide a layer of legal protection for all parties involved in a transaction. If you operate without a license and run into legal disputes with buyers, sellers, or other agents, you may be at a disadvantage when it comes to legal recourse.
Ultimately, the need for a real estate license to flip houses depends on your specific circumstances and the laws of your state. If you plan to engage in house flipping as a business, consider the benefits a license can offer, including access to MLS, legal protection, and a professional network.
If obtaining a license is the right path for you, consider choosing Colibri Real Estate School as your trusted partner as you start your real estate journey. Comprehensive courses led by experienced instructors will guide you through the process of becoming a real estate agent. Contact us today to learn more and get started.
